OCTOBER 13, 2014
Driving through Prince George's County, Maryland, it's not obvious that its towns and cities are at the epicenter of the foreclosure crisis in the Washington, D.C., region. In the town of Bowie, for instance, large colonial-style homes with attached two-car garages, spacious apartment buildings designed for families, and modern shopping centers line the streets. As in any other middle-class community, school-aged children chase each other in front yards while their parents monitor from the porch, and twentysomethings in workout gear jog the tree-lined streets. There's no shortage of schools, community centers and places of worship, and if any homes are abandoned, it's not glaringly obvious.
What sets Prince George's County apart from other upscale regions is that most of its citizens are black. No other majority-black counties in the United States are even comparable in terms of numbers of educated citizens and middle-class incomes, but when the economy crumbled, so did the dreams of many homeowners living in Prince George's. And despite promises of help by President Barack Obama and lawmakers, seven years after the housing bubble burst, the county's foreclosure crisis has only slowed, not abated.
Prince George's County Government
As the wealthiest black-majority county in the United States, Prince George's has long represented the pinnacle of black success. The county's median household income is $73,568-a full $20,000 more than the median household income of the United States as a whole. Only 7.1 percent of U.S. firms are black-owned, but in Prince George's that number stands at a whopping 54.5 percent.
A full 29.5 percent of people over the age of 25 hold bachelor's degrees-slightly higher than the 28.5 percent rate for all persons in the United States. Known colloquially as just P.G., the county is filled with lawyers, entrepreneurs, teachers, and federal employees. In popular lore, Prince George's was proof that, while blacks still lagged behind in education, wealth and employment, the black community was finally catching up.
But in 2007, the bursting of the housing bubble triggered an economic recession that rippled throughout the global economy. For years, the housing market had been booming; in 2007 the U.S. median price for a house hit a record high of $247,900. By 2009, though, that number had fallen to $216,700. For Prince George's County, however, the decline was much more stark. In 2009 the median price for a house dropped by nearly $100,000, from $343,000 to just $245,000.
Although the foreclosure crisis left no part of the country untouched, in the Washington, D.C., area-which, overall, weathered the crisis well-Prince George's County bore the brunt. The reason? Subprime lending.
RealtyTrac
A subprime mortgage is a loan that carries a higher interest rate than prime mortgages. Prime mortgages are often given to lenders with the best credit histories, while subprime mortgages are designed for borrowers with flawed credit histories. The higher interest rate that comes with subprime mortgages is intended to pay the lender for taking on a risky borrower. In 2009, one quarter of all mortgages in Prince George's County were subprime.
By 2011, the foreclosure rate in Prince George's county had reached 5.3 percent, twice the rate for the Washington, D.C., region overall. Approximately 15 percent of homeowners in Prince George's County received notices of intent to foreclose (NOI) that year. On average, the median borrower receiving an NOI was 79 days behind on his or her mortgage payment, and owed an average of $6,400 in late mortgage payments, as well as fees and penalties.
Across the nation, black homeowners were disproportionately affected by the foreclosure crisis, with more than 240,000 blacks losing homes they had owned. Black homeowners in the D.C. region were 20 percent more likely to lose their homes compared to whites with similar incomes and lifestyles. (See the December 2012 issue of The American Prospect, "The Collapse of Black Wealth," by Monica Potts.) The foreclosure crisis also affected blacks of all income brackets; high-earning blacks were 80 percent more likely to lose their homes than their white counterparts, making the homeowners of Prince George's County prime targets.
(AP Photo/Rob Carr, File)
In this Jan. 12, 2010, file photo, Wells Fargo customer Malinda Lievers of Edgewood, Maryland, signs paperwork on a loan mortgage modification, at the Baltimore Convention Center in Baltimore. The dismal results of Obama's mortgage aid program now raise doubts about whether the government can fix the housing crisis.
Even the most stable of P.G. County homeowners wound up with subprime mortgages, presumably made to believe that subprime was their only option. Not even a good credit score would have spared blacks from these discriminatory lending practices. The Center for Responsible Lending found that during the housing boom, 6.2 percent of whites with a credit score of 660 and higher received high-interest mortgages but 21.4 percent of blacks with a score of 660 or higher received these same loans.
It turned out that several of the major banks had been purposely giving people of color subprime mortgages, including borrowers who would have qualified for a prime loan. The City of Baltimore took Wells Fargo to court, bringing some of the banking giant's abhorrent lending practices to light. One former employee testified that in 2001, Wells Fargo created a unit that would be responsible for pushing expensive refinance loans on black customers, especially those living in Baltimore, southeast Washington, D.C., and Prince George's County-all locations with large black populations.
(AP Photo/ Gail Burton)
According to court testimony, some of the loan officers at Wells Fargo spoke of these subprime loans as "ghetto loans," and referred to their black customers as "mud people."
There was even a cash incentive for loan officers to aggressively market subprime mortgages in minority neighborhoods. In the end, the Justice Department found that 4,500 homeowners in Baltimore and the Washington, D.C., region that had been affected by these flat-out racist lending practices.
Specifically targeted for subprime loans among the minority demographic were black women. Women of color are the most likely to receive subprime loans while white men are the least likely; the disparity grows with income levels. Compared to white men earning the same level of income, black women earning less than the area median income are two and a half times more likely to receive subprime. Upper-income black women were nearly five times more likely to receive subprime purchase mortgages than upper-income white men.
The services of data collection agencies made it easy for lenders who were able to buy information about a potential borrower's age, race and income. Armed with that information, it was easy for lenders to target moderate-to-high income women of color.
Without admitting to any wrongdoing, Wells Fargo finally settled with the City of Baltimore in 2012. Still, Wells Fargo agreed to pay to the tune of $175 million dollars; $50 million of the settlement went towards helping community members in the Washington, D.C., region, as well as those in seven other metropolitan areas, make down payments on new homes. The settlement, however, was hardly a fix for the loss of family wealth suffered by those who lost their homes.
Urban Institute
Family wealth describes all the assets of a family: the members' financial holdings, their property, and any businesses they may own. For many homeowning families, the home comprises most of the family's wealth. When such a family loses its home, other forms of wealth-savings, stock shares-are often used to cover the costs of the crisis. In the Great Recession, according to a working paper by Signe-Mary McKernan and colleagues for the Urban Institute, the wealth of U.S. families overall was reduced by 28.5 percent. But for blacks, the authors found, the decline was far greater: a loss of 47.6 percent.
The relative lack of black wealth is a complex problem with roots going back to slavery, exacerbated by decades of institutional racism. In 2010, the median wealth for white families was $124,000; for black families it was a mere $16,000, according to the Urban Institute. As blacks moved into the middle class, the housing boom held out the promise of a chance to build prosperity. The wealth gap between blacks and whites was by no means created by the recession, but after the economy collapsed, the gap worsened drastically.
From 2005 to 2009, the net worth of black households declined by 53 percent while the net worth of white households declined by 16 percent, according to Social & Demographic Trends researchers at the Pew Research Center. At the peak of the housing boom, 49 percent of blacks owned homes while the same measure for whites hovered around 75 percent.
Historically, the wealth gap between whites and blacks can be traced back to the ability to own land; for a number of years blacks were prohibited from owning land, and once homeownership became the primary way to own property black people were often barred from that, too.
In response to the Great Depression, the Federal Housing Administration was created through the National Housing Act of 1934. The purpose of the FHA was to regulate interest rates and mortgage terms. While this new government agency created an opportunity for whites to become homeowners and begin accumulating wealth, government-sanctioned racism kept blacks out of the housing market.
The FHA regularly denied mortgages to black people and limited loans to new residential areas on the outskirts of the city
, where the white population tended to live; this contributed to the decay of inner city neighborhoods as middle-class residents left to build new homes in the suburbs. Federal policy also dictated that the home values of predominantly black neighborhoods were to be lower than in neighborhoods that were mostly white. Even though that law is no longer on the books, its legacy remains: Homes in black neighborhoods still have lower values than homes in white neighborhoods with similar incomes.
Pew Research Center/Social & Demographic Trends
The Federal Housing Administration also practiced redlining, the practice in which lenders would deny or limit financial services based on race, regardless of other financial qualifications. The term redlining comes from the practice of drawing red lines on maps to mark the black neighborhoods where banks would not invest. The FHA was firm in its racial bias; in one of its publications, the agency even declared that neighborhoods should not be racially integrated. Finally, by 1968 as part of the Civil Rights Act, the Fair Housing Act was implemented. It was a victory for blacks nationwide, but the damage had already been done. While white families had been building wealth for decades, blacks found themselves behind. In the years after housing act's passage, the wealth gap would certainly shrink, but never come close to closing.
In the 1970s, black migration from Washington, D.C., to Prince George's County began to pick up speed. As developers created suburban landscapes out of the farms of this once-rural area, black families began moving to Prince George's from the city to enjoy the lower housing costs. In response, real estate agents began practicing what is known as blockbusting, selling a house to a black family then urging all the white families to move out because the presence blacks in the neighborhood would allegedly cause property values to decline.
Economic Policy Institute/Algernon Austin
The blockbusting era coincided with the integration of schools in Prince George's County, which began in 1973 with a court-mandated busing plan. The desegregation of the schools led to a massive white flight-the term given to describe extensive white out-migration from neighborhoods in response to blacks begin to moving in. All of these factors led to Prince George's becoming a majority-black county.
Throughout the 1980s and 1990s, the black population in Prince George's continued to grow; the housing values did not plummet as real estate agents had predicted. Instead, the county grew wealthier. By purchasing homes, black homeowners began to gain their own wealth, thinking to ensure wealth for their children. Passing down wealth through homes has long been a practice of the middle class.
The foreclosure crisis not only caused blacks to lose their homes and their slice of the American dream; it will also present new challenges to the next generation as the likelihood of receiving wealth passed down from their parents is disappearing very quickly. When it comes to inherited wealth, blacks often don't receive any, according to Valerie Wilson, director of the Economic Policy Institute's Program on Race, Ethnicity, and the Economy. Often, Wilson told me in an interview in her Washington, D.C., office, the home is the only substantial asset a black family has, and many will use their homes to finance the education of their children, or retirement for the homeowners, who, by the time they've reached the end of their lives, consequently have very little accumulated wealth.
After the economic crash and subsequent subprime meltdown, the closing of the wealth gap between blacks and whites, which accelerated during the housing boom, began to reverse, eroding years of progress-and there doesn't seem to be an easy way to fix the problem.
"I don't think you can do it with any one thing," said Wilson.
"The most immediate [solution] would be a transfer of cash-reparations-but even with that I don't know that the gap would stay closed." Inequities exist in much more than just wealth; there are also disparities in education, wages and employment, she explained. "All of these things would still eat away at wealth, even if we could wipe the slate clean and equalize. We'd really have to address structural racism and inequality in this country."
As the foreclosure crisis continued to eat away at black wealth, the Obama administration introduced a couple of programs intended to alleviate the suffering of homeowners. The Home Affordable Modification Program (HAMP) was created to provide eligible homeowners with loan modifications on their mortgage debt. This program is designed to provide relief to borrowers who are facing foreclosure. To meet eligibility requirements, applicants must prove financial hardship, have obtained their mortgage on or before January 1, 2009; owe no more than $729,750 on their primary residences or a one-to-four unit rental property; and, finally, applicants must not have been "convicted in the last 10 years of felony larceny, theft, fraud, or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction."
If HAMP is helping Prince George's homeowners, it's certainly not helping enough.
The program is widely considered a failure. Nationwide, 1.3 million people received loan modifications, but 350,000 of those people again defaulted on their mortgages and lost their homes. In the Washington, D.C., metro area, the redefault rate was at 26 percent in mid-2013.
North Carolina Republican Patrick McHenry sought to address the program's shortcomings by introducing the HAMP Termination Act of 2011. But Representative Donna Edwards, who represents the 4th Congressional District of Maryland, comprising parts of Prince George's County and neighboring Anne Arundel County, was in no mood to give up. In a speech on the House floor arguing against McHenry's measure, Edwards spoke of how the Neighborhood Stabilization Program, part of HAMP, provided $12 million dollars to Prince George's County, helping communities in her district resell abandoned homes. She lamented that the HAMP program wasn't able to help as many homeowners as it originally planned, but felt that doing away with the program altogether was an injustice to her constituents, and struggling homeowners nationwide. McHenry's measure passed the House, but never saw a vote in the Senate.
(AP Photo/Lawrence Jackson)
Three years later, the congresswoman still remains firm in her support for HAMP. "Some of my colleagues don't want to expand programs that would give relief to homeowners," Edwards explained in a telephone interview, "but I'm a big fan of that, because these are people who are getting up and going to work every day, and we need them in the economy. And part of them being in the economy is being able to pay their mortgages."
When a homeowner applies for loan modification, the application must first go through the bank. Edwards told the Prospect that the slow processing of loan modification applications is making the foreclosure crisis worse on homeowners in her district.
"The banks are taking forever to respond, and by the time they do, the fees and expenses add up," she said. "The homeowner is in more of a bind, sometimes waiting a year to get the paperwork straightened out." Not only are late fees adding up; some homeowners are still stuck paying their old mortgages while waiting for a resolution.
Edwards's staff find themselves fielding calls from desperate constituents who are stymied by the banks' glacial pace in processing paperwork. When the congressional office calls the bank with the same request as the homeowner, the process is suddenly sped up, Edwards said, proving that the process for evaluating applications could easily be improved.
"I do think that there has to be some kind of accountability mechanism placed on the banks," Edwards said. "Some accountability for what the banks are doing, and how fast they're doing it, would be really helpful for homeowners."
It's been six years since the beginning of the foreclosure crisis and five years since the recession technically ended and the recovery period began. Nationally, the foreclosure crisis is easing. But in Maryland foreclosures recently hit a high. Initially, Maryland was in 16th place in number of foreclosures, but by 2013, the state had skyrocketed to third in the nation; the number of filings increased by a staggering 250 percent between 2013 and 2014 with Prince George's County seeing a 50 percent increase of foreclosure in this year.
The new wave of foreclosures is not a new crisis but a continuation of the old one. In 2011 and 2012, the rate of foreclosures in Maryland slowed, but this was the result of a new law that went into effect on July 1, 2010. Placing pressure on lenders, the Foreclosure Mediation Law created a new timeline for home foreclosures. Under the new law, when a lender notifies a homeowner of the possibility of foreclosure, the lender is also required to provide information on loan modifications, or any other type of assistance. The mediation law created a backlog and Maryland is just now beginning to see all the foreclosures that were previously stalled. The original intention of the law was to help members of the community stay in their homes, but instead, for many, it appears to merely put a pause on foreclosures.
The recent uptick in foreclosures led to a bill sponsored by State Senator Anthony Muse, a Democrat representing Prince George's 26th legislative district that would place a moratorium on all home foreclosures in Maryland. The bill also called for legal examinations of those who were foreclosed on illegally. The bill is still pending.
It's safe to say that the foreclosure crisis is nowhere near over for Prince George's County.
The big banks, the creators of the financial crisis, were bailed out and are now making record profits. Those most victimized by the economic downturn, blacks-and black women in particular-were saddled with haphazardly created programs that have not lived up to their promises.
As Prince George's County continues to suffer from the foreclosure crisis, the loss of wealth by so many of its residents is felt far beyond its borders. For those still within those borders, it must be asked, when will these homeowners begin to see real relief?
